COMMISSIONER OF INCOME TAX Vs. ARASAN AND COMPANY

JUDGEMENT

(1.) THE assessee in this case is a firm. During the year ended August 16, 1969, relevant to the assessment year 1970-71, it claimed a development rebate of Rs. 99,802 in respect of new machineries purchased during the year. THE ITO noticed that the firm purchased these new machineries which were intended for use in the workshop to be set up at Tirunelveli, but these machineries were neither installed nor used during the accounting year. It was also found that during that year, the assessee had created the necessary reserve when it made the claim for development rebate for the assessment year 1970-71. THE ITO had rejected the claim for development rebate for the year 1970-71 on the ground that the machinery has neither been installed nor used during the relevant accounting year. That rejection of the claim for development rebate has attained finality as the Tribunal has upheld the rejection of the claim.

(2.) FOR the assessment year 1971-72, the assessee, while furnishing the return, did not claim development rebate as in its view it was allowable only in the previous year 1970-71. However, when the assessment for 1970-71 was completed, disallowing the claim of the assessee, the assessee by a letter dated December 6, 1972, requested the ITO to allow the claim for development rebate at least in the assessment year 1971-72. The ITO rejected the said claim on the ground that the firm had not created the necessary reserve during the pervious year relevant to the assessment year required under s. 34(3)(a) of the I.T. Act, 1961. According to the ITO, the creation of a reserve in an earlier previous year is not sufficient to obtain development rebate for the subsequent year, since the creation of a development rebate in the previous year is a condition precedent for claiming the relief by way of development rebate under s. 34(3)(a). In that view, the ITO rejected the assessee's claim for development rebate for the year 1971-72.

(3.) THE provision contemplates the grant of development rebate only in cases where the assessee debits an amount equal to 75% of the development rebate to the profit and loss account of the relevant previous year and credits it to a reserve account to be utilised by the assessee during the period of eight years next following for the purpose of business of the undertaking other than for distribution by way of dividends or profits or for remittance outside India as profits or for creation of assets outside India. It must be noted that the provision is in a negative form and it says "no deduction under section 33 towards development rebate shall be allowed" unless the conditions set out therein are satisfied. THErefore, the condition of debiting an amount equal to 75% of the development rebate to the profit and loss account of the relevant previous year and crediting of the same to a reserve account for utilisation during a period of eight years next following for the purpose of the business undertaking, is a condition precedent for the grant of relief by way of development rebate. In this case, admittedly, the assessee has not debited any amount to the profit and loss account, much less and amount equal to 75% of the development rebate to be allowed for the year 1970-71 and credited it to a reserve account. THE Tribunal has taken the view that the debiting of the requisite amount to the profit and loss account and crediting it to a reserve account in the earlier previous year, is sufficient compliance with s. 34(3)(a). THE condition contemplated by the section is debiting an amount of 75% of the development rebate to be actually allowed to the profit and loss account of the relevant previous year and the section does not take into account the debit of any amount to the profit and loss account in the earlier pervious year. We are of the view that it will be a clear misreading of the provision if we say that the creation of a reserve towards development rebate in the earlier previous year is sufficient compliance with the said provision. When the statute has provided a condition for the great of development rebate and the creation of a development rebate in the relevant previous year, it is not correct on the part of the Tribunal to construe the relevant previous year as including or taking in an earlier previous year.